Will the 60/40 Portfolio Stage a Comeback in 2023?
Putting 60% of a portfolio in stocks and 40% in bonds is supposed to hedge against both assets dropping simultaneously. But it didn’t pan out that way in 2022.
Inflation and rising interest rates whacked both asset classes, and a Bloomberg index tracking a 60/40 mix is down about 17% for the year. But some veteran investors say the classic approach to investing still makes long-term sense, and that bonds are positioned to regain their status as a good counterweight to stocks.
For long-term investors, the drop in stock valuations and the rise in bond yields in 2022 sets the stage for future average returns of 6.9% on the 60/40 mix, according to Leuthold Group, a market research and money management firm.
But those returns may come with more volatility than in the past, the report concluded.
Leuthold’s research used the S&P 500 as its stock proxy. But the stock portion of a 60/40 portfolio shouldn’t be entirely in US stocks, said Christine Benz, director of personal finance at Morningstar Inc.
“I always think that’s how the mix is conventionally construed, but the experts don’t recommend that, and I certainly wouldn’t, either,” she said. “Most investors should have exposure to international equities and have some — not a lot, but some — cash on hand.”